Government (Financial Services Sector Ministry) is reported to be now writing to the Nominee Directors of banks ( this would include Nominee directors from RBI) with a copy to the Chairmen of banks to ensure that their directives are carried out by the banks since RBI had objected to such directives issued to banks as micromanaging the banks. RBI have been pressing the Government for a long time to remove their nominees from public sector banks as there is a conflict of interest because of its regulatory function over banks. Government had not agreed to the request but found a solution by asking RBI to nominate their retired executives to the boards of banks. This practice was introduced but has since been given up. The latest directive from the Government would place the nominee directors from RBI on the horns of a dilemma- whether they have to follow the RBI directives or the ones from the Government especially when the directives from the Government are not in accordance with the RBI stand. In the circumstances, RBI would either have to firmly insist on their representatives being removed form the boards or instruct their officers to follow the RBI stand. The former seems to be an easier option.
A.Chandramouliswaran (via e-mail)
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In view of the development,referred to above,RBI will be ill-advised to give in and withdraw its nominees on the board of public sector banks. Needless to add that RBI nominees will have to go by RBI guidelines and ensure compliance by banks, regardless what the government nominees may say. Ultimately decisions have to be taken by the Board by majority and it is expected that in such a scenario other independent directors would assert and go by what is good for the health of the bank and not for the ego satisfacation either of the government or RBI. RBI nominees on the board of commercial banks have an onrous task and they have to do a lot of homework, study the agenda to make their contribution effective. Top management of banks find lot of comfort with the presence of RBI nominee on their board and most of them in the past had advocated for their continuation when RBI planned their withdrawal. Apart from the banks which get benefitted by the advice/experience of RBI nominuees, the directorship also affords an excellent opportunity to RBI Officers for their all-round development in making them true banking professional. Therefore, RBI need not get unduly disturbed by this act of the MOF,and continue to pursue its policies through their nominees on the board of commercial banks including public sector banks.
M.L.Mahajan
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